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When Did the Concept of “Retirement” Come to Be?

As you can well imagine, the idea of “retirement” did not exist in Roman times, nor medieval times, and certainly not when Pilgrims discovered America.  What about during the days of Lewis & Clark?  Or when the wild West was being settled?  History teaches us that a Roman peasant had to fight for food every day of their life.  A peasant could not even fathom taking life easy, sitting back to watch the evening news, or going out to eat and taking in a movie. How could an English Lord even conceive of “retiring?” He had to manage a kingdom and train new knights to protect him and his vassal serfs.

Some examples of newly created words, along with the idea of “retirement” in the last 100 years include:

  • Internet
  • World wide web
  • iPhone
  • Light bulb
  • Polyester
  • DVD
  • Contact lens

We have seen so many advances in technology and medical care in the last century that we have a lot more time on our hands than anyone born before the turn of the last century. That extension of life plus all that time we have available has been the reason the idea of retirement even exists.  “Retirement” is a new concept, only around since just before World War II broke out. Up until 1920, most people died before they reached the age of 60, so retirement wasn’t even an option.  When people started to live past age 65, some elderly folks started to save money for when they could no longer work, and thus the concept of retirement was born.

Four problems came along with this new concept. The first problem is outliving your income. Today 92 percent of everyone who is retired is totally dependent upon their Social Security benefit.

A second huge problem is inflation.  Just use your Web browser to see what one gallon of milk cost 20 years ago and you will be shocked.  You will most likely need to double the money you think is needed at retirement, because of inflation.

A third problem is continual taxation.  As you take money from you retirement savings plan to live, this income is taxed and can cause Social Security benefits to be subject to income tax as well.

A fourth gigantic problem is the cost of medical, long-term care and nursing home expenses.  The national average shows costs for a retired couple for medical/nursing care is $250,000 before they die.  This kind of cost is eating up all possible savings most people manage to squirrel away for retirement.  When all resources have been exhausted, the surviving spouse becomes destitute and is classified as being on welfare.

Considering these four problems, now is the time to decide what “retirement” means to you and whether you will be able to make that vision a reality. You have heard about the importance of planning for retirement your entire life, while those who lived before 1920 did not even have an inclination of what that meant. Before it’s too late, define what you want to happen when you reach age 65 because unlike your grandpa and great grandpa you will likely live longer than 60 years, so you will need to be prepared for that long life and how you want to live it.  It’s never too late to get going on this.  Go to moneymastery.com and sign up for the Basic online training package and see for yourself how much money you need to be saving for retirement, or calculate how long your money will last. For more help, contact me directly: peter@moneymastery.com.

What Will You Do about Money If You Live to Be 100?

Experts think that any of us living today, who reaches age 65, healthy and vibrant, will easily make it to age 100.  Whoa! That will change things financially, to say the least.  In the “old days,” between 1960 and 1980, people who reached retirement age lived just four to eight years past retirement to about 69 for men, and 72 for women. It wasn’t too big of a stretch to have between five and 10 years of retirement income saved . But consider working 35 years, then retiring for 35 years instead of just 5 to 10.  I read an article in 1983 that said by the year 2000, many people would be retired as long as they worked. At the time I balked at that idea — NO WAY! I thought. But the fact is, those numbers are a reality now and that longer retirement period is presenting some very challenging problems we all need to think about:

  1. How will you afford to live 35 years into retirement? 
  2. Will you need to work more years than you had originally planned, until age 75, for instance? What if you can’t because of poor health?
  3. Will you have to reduce your living costs drastically to make ends meet?
  4. What about inflation? If the inflation rate keeps averaging 5 percent screen-shot-2016-09-16-at-2-31-17-pmper year as it has been doing, living on a fixed income for 35 years is not going to work very well.
  5. People may be living longer, but especially in the United States, where the standard American diet is so poor, you won’t be living to
    a ripe old age in good health. What if you’re one in four people who will require long-term care? This is expensive at between $2,500 and $6,000 per month.
  6. Social Security will be bankrupt in 2034, according to the Social Security Administration’s annual report, so what do you do if you can’t count on even that income in retirement?
  7. If you are one of the many retired persons who is divorced, what will you do to live on just one retirement income instead of two?

The old way of looking at retirement planning may not work for you anymore. Trying to save using a basic 401(k) is passe. It’s time to get creative and look at real estate, life insurance, annuities, and leasable resources as other options for creating a predictable retirement you can’t outlive. I suggest you read the book MONEY, What Financial Experts Will Never Tell You Full of case stories and practical, holistic approaches to financial planning and retirement that are easy to apply, this book is a BookCovermust-read. Get it in time for Christmas and give it to your kids as well. They will for sure be living longer than you, in most cases, and will have to be ready for a long retirement period. Why not prepare them for that now?  Get going, as time will keep marching forward. Will you be pleasantly surprised when you reach retirement age, or will you be horrified and shocked at what you have done to yourself financially by not taking things seriously today?

What Impact Are the Baby Boomers Going to Have on You?

The oldest Boomer was born in 1946, just after World War II and is age 70 today.  The youngest Boomer was born in 1964 and is age 52 today.  There are 78,000,000 Boomers that make up 29 percent of the U.S. population.  Those are the statistics, so what do they mean to you?

I have three older brothers. They were bigger, stronger and faster than me in every way.  I looked up to them and tried to match what they did:  swimming, tennis, basketball, etc.  I did not realize for many years that they stretched me into being better than I would have ever been.  The same can be true for you, too, if you will watch and learn from the Baby Boomer generation; you will learn both good and bad from their example. The way they have handled retirement savings, for instance, is not looking good.  The average Boomer reaching age 65 today has less than $60,000 in total assets, according to the U. S. Census of 2010.  This should be a sobering statistic to you, if you are younger than the Boomers, and a wake up call to do something different with your retirement than they have.

Another way you can learn from the “older” generation is what to do and not do with healthcare. Out-of-pocket costs for anyone reaching age 65, until death, are predicted to be $200,000 per person or $364,000 per couple. How can anyone with a paltry $60,000 in total assets pay for these costs? The answer is they can’t and that’s where it’s getting really messy for the Baby Boomers. Let me be clear about this figure as it hovers around the quarter-of-a-million-dollar range! Good grief! This is a shocking statistic that you need to take seriously, now, while you still have a chance. Now is the time to look into getting long-term care insurance or setting up a health savings account or exploring other options. I urge you to contact me for options:  peter@moneymatery.com.

And here’s another thing to think about in terms of how Baby Boomers will affect the housing market, potentially to your benefit. As the first wave of Boomers begin to die in the next few years, more and more houses will be coming on the market with fewer people to purchase them, causing prices to go down. Author Harry Dent has said about the aging of America that when when people die, they certainly don’t buy anything ever again.  Or said succinctly, dyers are not buyers.  Get prepared now to take advantage of options that will come available to those who have the financial capital to act on those options due to the coming changes in the economy due to the changing demographics of the Boomer generation.

The High Cost of Bad Health

While it is true that the U.S. has one of the highest life expectancies of any country in the world, it’s also true that our quality of life as we age is one of the worst. That’s because even though the average age of death for a U.S. male is 84 and a woman is 87, they will most likely live to that age in poor health and needing long-term care at a nursing or assisted living facility. We live longer here but that’s only due to advanced medical care, not due to the way we eat or take care of ourselves.  In general, the U.S. is at the top of the list for the most obese and unhealthy populations in the world.

Even with that knowledge, we somehow think we will somehow be able to afford the cost of aging so badly. We don’t think twice about insuring our homes and cars, but we never think of insuring ourselves as we age in case we need long-term care.  How does the risk of long-term care compare with other majors risks we always insure against?

Home Fire:  1 out of 1,200 homes

Auto Accident:  1 out of 240 automobiles

Major Medical:  1 out of 15 people

Long-term Care: 1 out of every 4 people!!!

And the cost of getting that long-term care is staggering. The average cost of an assisted living facility is $3,000 per month (and that’s a no-frills facility). The average cost per month for stay in a skilled nursing home is $6,000. You can see how quickly life savings can be drained if one or both spouses needs to go into long-term care. And as you can see from the above statistics, your chances of needing that care are good, unfortunately.

One of the things people do to combat the loss of life savings as they age is to Medicarepurchase a long-term care insurance policy. As Peter pointed out in his last post, premiums for this type of insurance are expensive, usually around $6,000 per year. But, the cost of long-term care is SO MUCH MORE costly, that you can recoup your premiums in less than two years.

Okay, so purchasing long-term care insurance is one way to deal with the high cost of aging, but what about doing more to prevent these ridiculously high expenses yourself in the first place? The reason more people don’t do this is manyfold:

  1. When people are younger they can’t possibly imagine their bodies getting tired and wearing out, so they don’t plan for the future. It isn’t until people hit about age 50 that they realize they aren’t driving a new car anymore. While the “car” isn’t ready to go to the junkyard just yet, it’s still a used car and needs a lot more attention and maintenance than it once did.
  2. The cultural norm in our U.S. society is inactivity and obesity, so eating healthy and staying active take more work, more money, and more effort than they do in other countries where it’s more expected.
  3. We don’t have the cleanest food supply, with genetic food engineering, contaminated and depleted soil, pesticides, and chemical food processing. Let’s face it, it’s much harder to eat healthy in the U.S. than it is in countries where people are still eating raw food directly off the land. While trends are going to more organic, clean food, eating well in the U.S. is still more expensive than eating the standard American crap diet.

Okay, but enough with the excuses. Now on to what can be done to plan better for the future so we can not only be alive in our retirement years, but enjoying that life and having the money to do so. This requires work right now, when you are in your 30s, 40s, and 50s. Once you hit your 60s, the chance of aging well if you have not been eating right or staying active go down exponentially!

So what do experts mean when they say to eat right and be active?

First, the “eating right” definition:  

  • This means 5-7 servings of vegetables (fruit is not included in this) per day, 4 of those servings should be dark green vegetables.
  • Eating balanced meals that include protein, good fats (think Omega 3s not Omega 6s) and complex carbs (meaning whole grains and fruits, not simple carbs such as processed foods and sugar).
  • Eating smaller meals more frequently to avoid over-eating, or keeping portions small if eating only three times a day so you eat only until you are satisfied, not stuffed or even slightly full.
  • Drinking half your body weight in ounces of water. So let’s say you weigh 130 pounds, you should drink 65 ounces of water daily.
  • HamburgerTrying not to eat after the evening meal so you can let your body “fast” for a good 13-16 hours. Studies have found that people who live in countries where they often have to go to bed hungry or on a more empty stomach have better long-term health and tend to live longer. Fasting can be an important key to weight loss and weight maintenance.

Now on to the definition of “being active:”

There are arguments all over the place about what it means to be truly active and how much and what kind of activity you need to age well. So I won’t go into a lot of detail here, except to say that activity that is required to maintain health as you age is not a moderate little walk around the block. That level of activity, let’s be honest, is for those who have not stayed cardiovascularly active throughout their life and are trying to get some form of exercise in now that it is becoming really hard to do it. If you wait until your 60s to start being active, it’s going to be a lot harder to get in shape and stay that way, so don’t wait. Do it now, while you have a chance… a chance to do more than take a little walk around the block. While it is possible for people in their 50s and 60s who have never been active in their life to totally transform their life and get into total shape, the amount of time and effort to do it can be staggering! That’s why it’s important to do the work now, when the body can comply more easily.

What helps cells rebuild the mitochondria that naturally die as we age is 18284longer periods of moderate activity, meaning a three mile walk, if you’re just starting out, a five-mile bike ride, a 40-minute aerobics class of some kind.  Modify it to work for your level of fitness and work up to longer and harder activities such as running a 5k, biking 20 to 50 miles, hiking that more difficult peak, or swimming those 5 miles. It doesn’t matter, but just get moving so you can build up mitochondria and cardiovascular endurance. Be sure to consult a doctor if you have not ever been active or active for a long time to make sure your heart and lungs can handle more than a little walk around the block.

The second way we need to rethink aging well in terms of physical activity is getting body mechanics in order before you lose muscle, skeletal function, and balance that is almost impossible to correct as you get older.  How we move and use muscles in our 30s, 40s, and 50s will determine whether we can even stand up in our 60s, 70s, and 80s. Learn more about the absolute importance of bio-mechanics and how to stabilize and strengthen abdominal and spinal muscles, and how to use the core for balance, strength, and energy.  Take a yoga class (they say if you are not doing yoga after age 40 you are just crumpling in on yourself — yoga builds strength, balance, and flexibility), hire a bio-mechanics motion specialist, learn how to retrain parts of your brain that have been using certain muscle groups in your body incorrectly to alleviate pain, injury, and immobility. The more you move and move properly when you are younger, the better chance you  have of staying active your ENTIRE life.

For more information about how to age well and plan well for retirement visit www.moneymastery.com.

Be Prepared: Some Expenses DOUBLE at Retirement

The cost of living is always a big concern, but as we age some items skyrocket!  Here is a list for your review during your Social Security benefit planning of what goes into this calculation:

  • Food and beverage………will stay the same at retirement
  • Housing . . . . . . . . . . . . . .will increase by 12% at retirement
  • Apparel . . . . . . . . . . . . . . remain unchanged
  • Transportation . . . . . . .  will be reduced by 25%
  • Medical . . . . . . . . . . . . . . will multiply by 200%
  • Recreation . . . . . . . . . . .  remain unchanged
  • Education . . . . . . . . . . . . will be reduced by 50%
  • Other . . . . . . . . . . . . . . . . remain unchanged

When reaching retirement, two items stand out as huge increases to the Consumer Price Index:  housing and medical.  If a retired couple have health problems, this added expense can drain their liquid assets.  For example, if an elderly person needs to go into a long-term care facility, it may only take one or two years to deplete all the money they have saved their entire life.  When once spouse uses up the savings and then dies, this leaves the surviving spouse in a tragic position financially.  

This financial tragedy is not being talked about enough.  My young clients don’t talk about the future, it’s only my older clients, usually a surviving spouse, who comes to me and lays out their limited funds to live on for the next 15 years. Preventative measures are needed long before you retire.  I plead with you to pay attention so this does not happen to you.

There are four ways to prepare for the added medical costs that will certainly come along as we age.

  1. Save 10 percent of your gross income for your entire life.  Yes, even save after you have retired.  By establishing a savings habit for a lifetime you will certainly have money for emergencies and surprises.  If you can’t even imagine saving 10 percent right now. Work on creating the OnePercenthabit by saving just 1 percent of your monthly income and then work up from there. Let’s say you are earning $3,000 a month. To save 1 percent of that, all you need to do is put $30 away. Anyone can do this! Once you have established a savings habit, go to 2 then 5 and finally 10 percent.
  2. Organize your assets so you don’t own anything.  Consider creating an irrevocable trust and place the majority of assets into this asset protection tool at least five years in advance of needing to go into long-term care.  The Medicare and Medicaid plans do not permit you to own more than $40,000 of assets or they will not reimburse your expenses.  Rule of thumb is to create an irrevocable trust before age 55.
  3. Purchase a long-term care policy that will pay these monthly expenses if you need to enter a care facility.  Long-term care can be expensive, as much as $25,000 a year or more.  It is wise to do something now about the need for long-term care, which 1 in every 4 elderly people will need. If your premium is $6,000 a year and you need a $4,000 a month benefit, you can do the math and see that if you paid this Medicareannual premium of $6,000 for 10 years, it will take less than 2 years to get all your money back.  A recent statistic shows the average length of stay in a long-term care facility is 4 years.  You can judge accordingly.
  4. Add a long-term care rider on an insurance product that pays for hospice and long-term care expenses as needed.  This can be placed on a life insurance policy and/or annuity.  When a long-term care provision is purchased as a rider on an annuity, for example, the premium is lower than the third option of purchasing an individual policy as a stand alone policy.  An important thing to do, which many people as they age do not take seriously, is eating properly and staying active. Once you’re out of your 50s, your chances of protecting yourself from bad health and long-term care goes down exponentially. Take charge of your life now so you can avoid expensive medical problems as you age! Diet and exercise have proven worthy of the effort, over and over again.  While life keeps coming and we all might get cancer or other health issues, planning the best you can while you are able will serve us the best.  

For more specific information about how to manage your finances so you can afford to take this preventive measures, contact me at peter@moneymastery.com.  

 

Why It’s Good to be Rich

I love the article by Jonathan Clements that appeared in the Wall Street Journal in 2005 called “Why It’s Good to be Rich” because it underscores the power of having surplus money, something you must experience to truly understand. A person in debt will never understand the idea that a little bit of surplus money can multiply quickly in your  hand.

Clements article outlines 25 financial benefits that people with fat wallets are able to enjoy and the ways in which those benefits create additional wealth. Here are some of those benefits:

  • You can pay off your credit-card balances each month, avoiding high interest costs.
  • You will always have enough money to take advantage of tax-favored accounts like Roth IRAs.
  • Your fat investment portfolio helps you feel rich so you don’t need to prove your wealth by purchasing new cars and designer clothing on credit.
  • Your accounts are big enough that you won’t get hit with annoying bank fees, annual IRA fees, and account-maintenance fees like those with smaller balances must pay.
  • Your high FICO score and superb credit history ensure that you can always get a loan and qualify for no-fee credit cards.
  • You can drop term life insurance because you’ll have so much money that your spouse and kids won’t need insurance; you can invest the premiums in cash-producing ventures instead.
  • You won’t have to buy long-term care insurance, saving thousands of dollars in premiums for something you may not even need; if you do end up going to a nursing home, you can pay your own care facility or home-healthcare costs instead.
  • You can sleep better at night because you don’t have to worry about how you’re going to pay the bills or whether your investments will see you through retirement.
  • Your financial prudence provides a good example for your children, so they grow up to be financially independent and less likely to need bailing out from you.
  • You won’t ever be forced to sell your home and move into an apartment after you retire, or worse, in with your kids.
  • You can avoid playing silly financial games such as buying lottery tickets in hope of “getting rich quick.”
  • You always have the cash on hand to seize lucrative financial opportunities whenever they present themselves.
  • You have enough money to travel the world or engage in philanthropic ventures that will provide you priceless experiences you would nave have been able to have otherwise.

Average Household Approaching Retirement Has Just $14,500 in Savings…

The Federal Reserve Bank just released statistics regarding retirement savings for those approaching age 65.  The average amount people have saved is just $14,500, and to add insult to injury, the statistics show that one-third of all households have no retirement savings whatsoever.

What can a person do to better to prepare for retirement?  I offer the following, with some explanation:

  1. Build a spending plan and create a surplus each and every month for the rest of your life.  In other words, quit overspending.  Don’t try to just write down what you think you will spend, but review all spending for the last 12 months and know for a certainty where your money has gone.  Then use this information to forecast your spending now and then track how you spend. This will create a surplus that you can use to forecast retirement.  
  2. Do not try to “wing-it” and hope for the best.  This has never worked for anyone!
  3. Consider working part-time for many years into retirement so that you can afford health care and some of the extras you may want during retirement.
  4. Keep your money safe, but keep it working for you.  Remembermoney paper airplane (1024x683) that people are living much longer than ever before.  Consider using the newly designed fixed-indexed annuities that guarantee no loss of principal, yet have averaged 5 percent growth over the last 10 years.
  5. Learn how to do tax planning.  Rate-of-return is no longer the best approach — it is tax planning that will make a huge difference in the income you have to live on.
  6. Stay healthy by eating right and exercising five times a week.  Okay, you may think I have no business giving such advice, but it has saved me, now in my mid 70’s, lots of money that I have available for me and not for a long-term care facility. Simple walking will work wonders.  Health care costs can eat away at your savings very quickly.  We don’t always control our own health issues, but we can do what we know we should — doing so has personally blessed my life.
  7. Do not allow your grown children to draw down your savings.  Parents are tempted, but this can set a bad trend that children will come to expect.  A client of mine recently purchased an apron and cut off its strings, then put these into a gift for her son graduating from high school.  Her message was very clear. Hope you will get the same one.

The Real Need for Long-term Care Disclosed…

Across the United States only 22 percent of folks over 65 believe they will be required to stay in a long-term care facility.  However, the national statistics show otherwise. A whopping 70 percent of all Americans will spend time in a long-term care facility.

What is the result when two tsunamis collide?  I’ll call one tsunami the catastrophe of 70 percent of all retirees needing some amount of long-term care.  The second tsunami is that the average person reaching age 65 today has less than $60,000 of total assets to their name!  When you combine these two you’ve got a serious catastrophe looming. To compound this problem, if one spouse has to have long-term services and uses all the assets and then dies, the surviving spouse will be forced to go on welfare, or be totally dependent on family.

Why is the need for long-term care so devastating? The cost!  Average providers charge $3,200 a month and in some areas of the country, there are only $5,000-a-month facilities available.  Calculating these costs predicts a $36,000 to $60,000 annual cost for 70 percent of people age 65 and older, with most needing care for three years. Because most people reaching retirement age today have only $60,000 to their name, you can see the dilemma.

So what can you do? Good solutions are very few.  I offer some options here from my own experience of 45 years.

  • I have seen some people set up a reverse mortgage on their home. This stops the debt payments and may allow them to pull money out to use for long-term care.
  • If you are in your 50s, long-term care insurance can be somewhat affordable and may be worth looking into. Once you reach your 60s, forget it. The premiums become too high to justify.
  • Many people are forced to use their Social Security income through Medicare for long-term care, but the facilities that accept Medicare are often poor quality and may already be full.
  • Some life insurance companies have been creative and added long-term care riders to annuities and life insurance policies, but this has not yet caught on in a major way. It may be worth your time to investigate insurance companies that offer such riders.

If you have been thinking that you need to do a better job saving forDon'tWait retirement, now is the time to really step things up.  Begin looking at adjusting the way you spend your income, the way you take debt for granted, and the need you may have to get creative in your working years to figure out ways you can fund your retirement more efficiently so you can save for long-term care needs, because 3 out of every 4 people will need it. Will you be one of them?

We plan well for other risks and catastrophes, but we don’t often think about planning for poor health in old age. How does the risk of long-term care compare to other risks we insure against?  Take at a look:

LongTermCare

LongTermCare

When you understand that three-fourths of all Americans will need some form of care you will see that now is the time to take action, before it’s too late. Stop assuming you won’t be one of them. It is more than likely that you will. You will find the need to adjust the way you are spending your income, the way you take debt for granted, and the lack of any long-term savings plan.  Get help before you are sitting on a cold park bench drinking soup from a tin can.

For some great options for funding retirement and ensuring against old-age poverty, contact me directly: peter@moneymastery.com, (801) 292-1099.

Filling Your Buckets Appropriately for Retirement

When I am explaining retirement planning to my clients, I like to use the analogy of buckets to help people visualize what they need to do to prepare the most appropriately for retirement.

Think of retirement planning in this way:

There are five financial buckets a person needs to use, in a specific order, to achieve optimum financial success:

  1. Income
  2. Inflation
  3. Liquidity
  4. Long-term Care
  5. Legacy

 

Bucket 1 – INCOME:  With whatever amount of money you have gathered over your working career, the first task is to lock down a guaranteed income you cannot outlive.  I know there are many issues, but if you have a guaranteed income it solves most other problems.

Bucket 2 – INFLATION:  There is an inflation index called CPI, which graphs how living expenses have increased over the years.  But what is “real” inflation?  I have kept track of my expenses for several decades.  I can refer back to cancelled checks and receipts showing what I paid for living expenses in 1979.  For example, I can tell you what I paid for a postage stamp.  My calculations show that inflation has been twice what the CPI tells me.  Do this for yourself.Buckets  Keep track of what you pay for gasoline, food, utilities, taxes and so forth each year.  Refer to your past tax records.  Learn what life is really costing you and learn how to keep ahead. Without securing Bucket 1, you will not have anything to keep up with inflation.

Bucket 3 – LIQUIDITY:  Emergencies happen all the time.  Plan for them.  It is important to have extra money when surprises happen and this money needs to NOT be tied up in accounts that you can’t get at. It must be liquid funds. As important as liquid cash is in an emergency, remember you must first create Bucket 1.

Bucket 4 – LONG-TERM CARE:  If you have enough guaranteed income (Bucket 1), which is inflation-proof (Bucket 2), and adequate liquidity (Bucket 3), then you may not need to purchase a long-term care insurance policy. As you can see, the order by which you deal with each bucket is most important.  Many people have enough income, so they don’t need to worry about long-term care.  However, let us assume you don’t have enough guaranteed income to pay for care in your old age. Now what?  I am sure you understand that a prolonged visit at a nursing home or assisted living center or hiring home health care can quickly wipe out all your retirement savings.  After a prolonged illness, surviving spouses can be left penniless.  We love our spouses and will do most anything to assist them.  But what if you are the one to go to a care center?  What if you were the one who drained the retirement money, how would you feel?  To solve this, you will need to purchase a long-term care insurance policy.

Bucket 5 – LEGACY:  If you have prepared the other four buckets appropriately, you will create a beautiful legacy for your loved ones. The fifth bucket can only be filled once you have the other four in place. Once you do, then you are ready to do final preparations where you get organized, create a living trust with a will, and a medical directive with a power of attorney.  Keep this updated with family changes. When you die, you will make your family very happy if you have done all this organization in advance. You will be remembered as someone who truly loved his/her family, even from the grave, because you thought enough about those you love to plan ahead.   Contrast this with six out of seven people who die with no will/trust, no records, no list of assets and no written plan… essentially, no legacy. How do you think this disorganized person will be remembered?

Your life can be financially rewarding if you have planned well, lived well and died well.  Money is not the most important thing in life, but it has the largest impact on relationships and memories.  For you to achieve financial peace of mind in this life, I suggest you prepare these 5 buckets in exactly the order I have prescribed. If you do, you will be ready to retire, and ready to go when the time comes having prepared properly.

What You Need to Know about Long-term Care

According to a 2003 study by Roger & Komisar for the U.S. Department of Medicare, in the year 2000 almost 10 million people needed some form of long-term care in the United States. Of this population, 3.6 million (37%) were under age 65 and 6 million (63%) were over age 65. The study notes that 70 percent of people turning age 65 will need this type of care at some point in their lives.  

In this post, I have included information from this study that I think you need to consider so you will be prepared in case you or your parents need some kind of long-standing care in your later years. How you handle the difficulties of old age and disability will be unique to you, so here is a list of important questions for you to think about:

  1. What is long-term care?
  2. Who needs it?
  3. How much care will I need?
  4. Who will provide my care?
  5. Who pays for long-term care?
  6. Will I need an attorney to facilitate it?

 

What is Long-term Care?

Here is what Roger & Komisar explain from their study:

Many people think the phrase “long-term care” refers to an insurance policy. While insurance may be part of your strategy, long-trm care encompasses everything from [extended care] services, support systems, finances and to where you will live and how you will navigate the plethora of legal, family, and social dynamics along the way. It is a range of services and supports you may need to meet your personal needs. Long-term care is not medical care but rather assistance with the basic personal tasks of everyday life, sometimes called Activities of Daily Living or ADLs. 

These ADLs include bathing, dressing, using the toilet, transferring (from bed to chair, etc.), caring for incontinence, and eating.

 

Will I Need Long-term Care?

Once a person cannot do any two of the above-noted ADLs, then they will need long-term care. Of course the first place people turn is to family members — spouse, children and grandchildren perhaps, or even a devoted niece or nephew. If you need assistance and other family members are already deceased, you can suffer if you have not planned ahead.  My father-in-law said to me, at age 93, that all of his friends had already passed away.  He then quipped, “I wonder how many people will still be around to attend my funeral?”  He passed away the next year and had lots of wonderful family and friends attend but his point was 2397well taken:  Who will assist us as we age? If family and friends are not likely to be available, then you will need to plan to take advantage of paid long-term care either inside or outside your home.

What are your chances that you will need long-term care? The following online statistics posted at the U.S. Department of Health and Human Services may help give you an idea of your risks:

  • Women need care more than men and they usually need it longer, obviously because they live longer than men on average. Men need care an average of 2.2 years, while women need it 3.7 years.
  • Any services for long-term will last on average three years and be used by 70 percent of anyone reaching age 65.
  • Professional at-home services will last one year and be use by 59 percent.
  • Unpaid care only lasts one year and is used by 42 percent.
  • Assisted living will last less than one year and be used by 13 percent.
  • Skilled care in a nursing facility lasts one year and is used by 35 percent.
  • Information about caregivers shows that 1 in 4 adults were unpaid family caregivers to an adult or child in 2009.  About two-thirds were women and 14 percent of those giving care were over age 65.

 

How Much Long-term Care Will I Need?

Because there are other daily tasks that must be performed in addition to ADLs that can become more difficult as you age, you will need to consider purchasing long-term care services that include help with such things as:

  • Housework
  • Managing money and paying bills
  • Taking medication
  • Preparing and cleaning up after meals
  • Shopping for groceries or clothes
  • Using the telephone or other communication devices
  • Caring for pets
  • Responding to emergency alerts such as fire alarms

 

Who Will Pay for Long-term Care?

This is a hard one to answer.  The cost for assisted living is between $3,000 and $7,000 per month.  This kind of cost can quickly wipe out a lifetime of savings in a matter of months or just a few years.  Here is what the National Patient Advocate Foundation’s newsletter said as quoted in the September 2012 issue of the Patient’s Voice:  

Sixty percent of all bankruptcies are due to health care costs, and 80 percent of those [who declared bankruptcy] had health insurance.

The cost of long-term care will be a growing concern for the next 100 years as we all live longer and longer.  Just consider the cost of food for the next 20 years.  

Example:  2 people x 3 meals/day x $10/meal x 7 days/week x 52 weeks a year x 20 years = $436,800! Just for food alone!

Now consider retiring for 30 years or more.  If you worked for 40 years, this is only 10 years short of the time you actually worked!  It is a huge possibility that you may be retired longer than you worked.  

What to do?  You must plan ahead and don’t assume that counting on Social Security is “planning ahead.”  The actuaries that forecasted the tax needed to pay for Social Security benefits used age 75 for males and 77 for females as the death age. But actual life expectancy ages for males and females are 81 and 83, respectively. In a Reader’s Digest article by Alan Greenspan in 1988, he said that every year we live longer will require one trSocialSecurityillion more dollars to be paid out (in 1988 dollars).  Inflation will bring that number into the trillions now. The long and short of it is to not count on Social Security alone to help pay long-term care costs. It is up to you to plan ahead now. Look into getting a long-term care policy that you can pay on now in case you need it later. If you are a woman, there is a very good chance you will need it since you tend to live longer than us men.

 

Will I Need a Lawyer to Prepare for Long-term Care?

Because you need to be protected legally in your old age, it may be wise to get an attorney involved before you need long-term care. This will also take great burdens off your spouse and children at the time you begin receiving care. Here are some of the documents an attorney can help you prepare that you will need in a long-term care case:

  • Advance Medical Directive, or a “Living Will”
  • Power of Attorney
  • Will/Trust (these documents will be needed to help advocate on your behalf any disputes from insurance companies, etc.

Even little things like modifications to living quarters required by law to help you live can be arbitrated by an attorney, especially if you have aLegalAgreements landlord, for example, that doesn’t want those modifications made. In addition, an attorney could be needed to determine if you qualify for Medicaid.  Most elder attorneys do not charge for their initial consultations.  Take action in advance of the need by determining what attorney services you may need and by finding a good lawyer that you can trust and afford.

In conclusion, the need for long-term care will soon be upon many of us.  Remember up to 70 percent of us will be affected by this problem whether we like it or not.  Planning ahead can prevent unnecessary expenses and ill feelings with loved ones.  Do as Money Mastery Principles 5 and 7 teach and “Know the Rules” and “Always Look at the Big Picture” so you can be prepared for a life event that is more than likely to occur for you.  To find what resources are available to you, visit: http://www.eldercare.gov/Eldercare.NET/Public/Index.aspx